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John McLean, a partner at Gowlings, is surely the city’s only lawyer with a plaque in his office (located on the 23rd floor of Bentall 5) displaying a cheque for 50 cents. That half-dollar represents his split of the purchase price paid by the buyer of the Port Alice pulp mill, in a sale that he helped arrange in 2006 and that ranks as one of B.C.’s great industrial resurrections. A year ago, the plaque seemed bare consolation for the sad condition of McLean’s specialty: insolvency law. “In good times,” he says, “people are too busy. They want to make money; they don’t want to spend time in court.”
True, as 2008 wore on, the rate of personal bankruptcy began to creep up, but no rain was made at the big firms, because individuals considering bankruptcy—in a more streamlined process than the corporate variety—do not usually turn to lawyers, instead proceeding on their own or engaging less costly advisers.
Corporate bankruptcy action only began to stir when forest companies started succumbing to the combination of a high Canadian dollar and low lumber prices, and by last May McLean found himself consumed by the case of Coe Newnes McGehee Inc., a Salmon Arm-based manufacturer of computerized sawmill equipment. He describes insolvency law as “real-time litigation,” in that it usually deals with an operating concern, often one that all parties would like to see nursed back to health. In the case of CNMI, Salmon Arm wanted to keep its several hundred highly paid jobs, and the industry didn’t want to lose a major player with a history dating back to the 19th century. Even the lender, a New York-based hedge fund, preferred to see the company remain lit. But there were serious issues. The lender was unhappy with CNMI’s management. Customers were reluctant to enter into agreements with a firm that might not survive. And the company was burning through its cash, leaving it unable to pay employees and suppliers. The file required McLean’s full attention for about two weeks, and for many hours a day for several weeks after—meaning fewer rounds of golf at the Point Grey country club.
This spike was not going unnoticed at other firms. At McCarthy Tetrault, partner Warren Milman decided last spring to diversify his corporate practice after the national office identified bankruptcy as a growing field. He spent several weeks in Calgary working with the company’s specialists there but found little call for his new expertise when he returned to Vancouver.
Then came August’s credit crisis, which denied even relatively sound companies access to money. Corporate bankruptcies began to rise toward the end of the year. At Gowlings, McLean and a colleague now have all the work they can handle; and Milman is busily training two junior lawyers to join him in McCarthy Tetrault’s suddenly burgeoning insolvency practice.
Those buzzing hives are all the more remarkable given the paucity of overworked lawyers elsewhere. Activity in mergers and acquisitions has withered, and many lawyers with connections to real estate, development, and resource industries are taking very long lunches. Milman says that Canadian firms are less ruthless than American ones and will resist the layoffs that are common south of the border; as chair of the firm’s pro bono committee, he also says more time is being spent on files for which no compensation is received. Funding cuts to provincial legal aid have increased the demand for services, while the drop in paying work has increased the supply of available lawyers. Junior lawyers are now allowed to apply approved pro bono work toward billable-hours targets.
Milman now works on bankruptcy files almost exclusively. Generally he represents a lender or creditor trying to get its money out, or intervenes on behalf of a vulture fund or competitor hoping to pick up distressed assets on the cheap. McLean, although equally likely to appear on behalf of the bankruptee, also takes on work for lenders, a word no longer synonymous with “banks”: the lender could be a bond holder, a hedge fund, or a syndicate. “Once, if you wanted lender work, you’d have five lunches,” he says. In today’s more complicated financial arena, that number is significantly higher. This will have consequences for companies with cash-flow problems, he believes, as banks can usually be relied upon to protect their own interests by helping out a struggling but still viable firm with additional financing.
Having a file opened by someone like McLean is not necessarily the legal equivalent of palliative care. Bankruptcy protection is intended to help a company reorganize or get back on its feet—in the U.S., the Chrysler Corporation famously bounced back from bankruptcy protection during the 1980s, and in February Trump Entertainment Resorts was petitioned into bankruptcy for the third time. Often, McLean works hand in hand with a court-appointed monitor, usually a company that specializes in managing assets during restructuring, whether it be a reorganization, a dispersal, or the shuttering of operations. He refers to David Bowra of the Bowra Group as “the Bob Rennie of troubled condominiums,” due to the quantity of real estate his company has recently been charged with selling. Bowra got the other 50 cents after the Port Alice mill was sold.
Had Bowra taken the monitor role in the CNMI case, he stood to receive a much bigger bonus. Instead, he became interim CEO of the company, leaving a Toronto-based monitor to collect the reward for brokering a deal that saw the company taken over by a competitor. The plant stayed lit, a portion of its jobs saved—a happy ending of sorts. But if McLean is correct, that outcome will be less common. “Depending on the U.S. economy, I think things are going to get even darker,” he says. For him, of course, that’s even brighter.